Zhitong Finance APP learned that Zhongjin released a research report stating that it maintains a 'recommended' rating for Wei Long (09985). Considering the increase in gross profit margin in 1H24 and the rapid increase in new channel revenue, it raised the company's net profit for 24/25 years by 6.8%/5.8% to about 1.07/1.21 billion yuan. Considering the increase in profitability, it raised the target price by 6.8% to HKD 7.8. The company released a profit pre-announcement for 1H24: based on unaudited comprehensive management accounts and currently available information, the estimated net profit for this group's 1H24 is about 0.599-0.6215 billion yuan, a year-on-year increase of 34% to 39% compared with 0.447 billion yuan in 1H23, slightly exceeding market expectations.

CICC's main points are as follows:

The bank predicts that the company's revenue will increase by about 25% YoY.

The bank predicts that the growth rate of the company’s online and offline channel revenues will be similar. Among them, the offline incremental channels include snack volume retailers (with the bank estimating that snack volume retailers' revenue in 1H24 is over 0.4 billion yuan), modern channels, while the circulation channels are under pressure due to revenue split caused by traffic diversion. In terms of product categories, the bank predicts that the seasoning noodle and allied product revenue in 1H24 will increase by single digits YoY, while the konjac revenue will increase by over 20% YoY.

According to the company's announcement, the net profit margin in 1H24 is expected to increase YoY, mainly due to the YoY improvement of gross profit margin, benefitting from the improvement of production capacity utilization rate and some raw material prices such as soybean oil decreasing.

Regarding marketing activities, the company increased investment in emerging e-commerce channels such as Douyin in 1H and successively launched new products including Crispy Fire-fire flavor, Little Witch Sesame Sauce Hot Pot flavor, upgraded Spicy Bean Curd Sheet, Little Witch Konjac Vegetarian Jerky, new packaging Low-Calorie Seaweed, and Durian Spicy Strips, etc. Therefore, the bank predicts that the company's marketing expenses in 1H will increase YoY.

Looking ahead to 2H24:

Incremental channels and new products will continue to increase. Channels: The bank predicts that traditional circulation channels account for nearly 50% in 1H24, with the other half mainly consisting of modern channels, online, and snack volume retailers. The bank predicts that as leisure snacks enter the relatively peak season in the second half of the year, channels will continue to increase. Products: Since 2H23, the company's new product launch speed has increased significantly. The bank predicts that the overall revenue contribution of new products in 2024 is expected to reach several hundred million yuan. Currently, feedback for new products such as Crispy Fire-fire and Little Witch is good.

Risks: continuous pressure on the growth of traditional channels, significant cost fluctuations, intensified competition, and food safety risks.